Seasonally adjusted economic activity, a proxy for gross
domestic product, rose 1.15 percent in November from October,
the central bank said in a report published on its website
today. The median forecast of 21 analysts surveyed by Bloomberg
was for a 0.9 percent gain.

Lower interest rates, measures to boost credit and tax cuts
are helping to fuel domestic spending, said Newton Rosa, chief
economist at SulAmerica Investimentos. Traders are betting the
central bank will cut borrowing costs half a point to 10.5
percent this week, and to 10 percent by May, according to
Bloomberg estimates based on interest rate futures.

“Growth is being fueled by domestic demand,” Rosa said,
speaking by telephone from Sao Paulo. “The economy rebounded in
the fourth quarter, reflecting the stimulus given by the
government.”

The increase in economic activity ended three straight
months of declines from August through October, the longest
contraction since the one that followed the bankruptcy of Lehman
Brothers Holdings Inc. in 2008. Since August, President Dilma
Rousseff’s administration has cut the benchmark interest rate
three times, lowered taxes on consumer goods and eased curbs on
credit to try to revive growth and protect Brazil from the
European debt crisis.

Futures Yields

The yield on the interest rate futures contract maturing in
January 2013, the most traded in Sao Paulo today, rose two basis
points, or 0.02 percentage point, to 10.03 percent at 12:44 p.m.
in Brazil. The real appreciated 0.3 percent to 1.7817 per
dollar.

The rebound in activity will make it harder for the
government to achieve its goal of a benchmark rate below 10
percent, said Jankiel Santos, chief economist at Espirito Santo
Investment Bank in Sao Paulo.

“It’s going to become clearer and clearer for everybody
that the economy is not showing such a strong deceleration as
everyone believed based on the figures from the third quarter,”
Santos said in a telephone interview. “It was much more a
temporary pause rather than a change in the trend.”

‘International Jitters’

Even so, the central bank will continue to cut borrowing
costs at its next two meetings, as “international jitters”
following Standard & Poor’s decision last week to cut the
ratings of nine euro-region nations will weigh more heavily with
policy makers than domestic data, Santos said.

Santos expects policy makers to cut borrowing costs half a
point this month, and half a point in March.

Brazil will grow 3.6 percent this year, according to an
International Monetary Fund forecast, slower than Russia, China
and India, the other so-called BRIC nations. China is also
studying measures to shore up consumer spending in the face of a
global slowdown, Commerce Minister Chen Deming said this month.

Slowest Pace

Chinese gross domestic product figures to be published
tomorrow will show that the world’s second-largest economy grew
at an annual pace of 8.7 percent in the fourth quarter, its
slowest pace since 2009, according to the median forecast in a
Bloomberg survey of 26 analysts.

Brazil’s economy contracted in the third quarter for the
first time in more than two years, while industrial output has
fallen for five of the last eight months. At the same time,
robust consumer spending has helped to prevent a deeper
slowdown. Retail sales rose 1.3 percent in November, the fastest
pace in 15 months, while Cia. Brasileira de Distribuicao Grupo
Pao de Acucar, Brazil’s biggest retailer, last week reported
total sales up 20 percent in the fourth quarter.

Economists in a weekly central bank survey published today
cut their forecast for 2012 growth to 3.27 percent, from a week-earlier prediction of 3.30 percent, and held their 2013 forecast
at 4.20 percent.